What complicates the executive document rule is that businesses usually are not people.  Company selections typically replicate a course of involving a number of folks in several company workplaces who contribute to the final word determination.  That makes it typically tough to pin down “the” administrative document.  For instance, in Thomson v. Dept. of Labor, 885 F.second 551, 555 (ninth Cir. 1989), Mr. Thomson blew the whistle on his employer, a nuclear energy plant operator.  He was fired and he filed a grievance with the Division of Labor (DOL).  The matter went to an Administrative Regulation Decide on the DOL.  Whereas pending, the events labored out a settlement in a sequence of letters, copies of which have been despatched to the ALJ and included right into a proposed determination for the ALJ to signal.  The ALJ signed it.  As drafted and signed it mirrored the events’ settlement that the settlement can be with out prejudice to both celebration pursuing different treatments.  However the ALJ’s boss—the Secretary of Labor—was the ultimate decision-maker and adjusted the choice to be “with prejudice.”

Mr. Thomson sued, arguing that the insertion of the “with prejudice” language was arbitrary given the specific negotiations mirrored within the letters.  The federal government argued that these letters weren’t within the supplies despatched to the Secretary and due to this fact weren’t a part of the executive document.  The ninth Circuit held the letters have been certainly a part of the executive document as a result of the “entire administrative document … consists of all paperwork and supplies instantly or not directly thought of by company decision-makers and consists of proof opposite to the company’s place.” Id. at 555 (emphasis provided).

Accountability for offering the executive document to the reviewing courtroom lies with the company, and what the company offers will get a presumption of correctness.  See, e.g., Wilson v. Hodel, 758 F.second 1369, 1374 (tenth Cir.1985) (“The courtroom assumes the company correctly designated the Administrative Document absent clear proof on the contrary.”).  Nevertheless, if a celebration can solid ample doubt on the completeness of the document, restricted discovery could also be applicable.  Id.

The executive document shouldn’t be the kitchen sink.  That’s, the company shouldn’t be required to incorporate pre-decisional paperwork, or paperwork the company decides are irrelevant or immaterial to the choice being reviewed.  Neither is the company required to supply a log of all omitted paperwork.  Oceana, Inc. v. Ross, 920 F.3d 855, 865  (D.C. Cir. 2019) (“The federal guidelines don’t require events to supply logs of all paperwork that weren’t produced as a result of they have been deemed immaterial or irrelevant. It could be fairly odd to require a special process in company overview circumstances.”).  Fairly, if a celebration believes there are lacking paperwork, the burden is on that celebration to establish the paperwork and present the company really used the paperwork in its decisional course of. See, e.g., Marcum v. Salazar, 751 F. Supp. second 74, 78 (D.D.C. 2010) (litigant searching for to incorporate paperwork within the administrative document should “put forth concrete proof that the paperwork…have been really earlier than the decisionmakers.”).

Once more, nevertheless, when the executive determination is made in a number of levels, the executive document consists of all related paperwork that have been earlier than varied decision-makers in every stage, and never simply the final stage within the decisional line.  See Thomson v. Dept. of Labor, Wilson v. Hodel, supra.

Regulation: The Whistleblower Award Willpower Course of
Part 7623(b)(1) says that if the IRS “proceeds with any administrative or judicial motion described in subsection (a) primarily based on info dropped at the Secretary’s consideration by a person” then the whistleblower should be awarded between 15% and 30% “of the proceeds collected because of the motion.”  The actions described in subsection (a) are “detecting underpayments of tax” or “detecting and bringing to trial and punishment these discovered responsible of violating the tax legal guidelines.”

Nothing in §7623 tells the IRS the way it should determine whether or not to present an award or not.  The IRS has developed a three-stage course of that one finds in each Treasury rules and the IRM.  For a extra detailed rationalization, see Lesson From The Tax Courtroom: The Slippery Slope Of Tax Courtroom Assessment, TaxProf Weblog (Oct. 12, 2020).  The purpose right here is that whereas the WBO is the final word decision-maker, it coordinates its determination with different workplaces within the IRS, notably the related Working Division (reminiscent of CI, SB/SE, LBI, and so on).  For particulars, see usually Treas. Reg. 301.7623-3, IRM 25.2 (Info and Whistleblower Awards).

Whistleblowers who’re sad with the WBO’s award determination can petition the Tax Courtroom for overview.  It’s now settled, after a slow-moving dialog between the Tax Courtroom and the D.C. Circuit, that the Tax Courtroom has the ability to overview a WBO determination provided that the IRS really “proceeds” with any administrative or judicial motion in opposition to the taxpayer the whistleblower fingers.  Li v. Commissioner, 22 F.4th 1014, 1017 (D.C. Cir. 2022).  That verb “proceeds” is true within the statute.

Part 7623, nevertheless, doesn’t comprise phrases on what normal of overview the Tax Courtroom should use or what info the sad whistleblower can convey to the Courtroom.  The absence of magic language implies that the IRS selections are casual adjudications underneath basic rules of administrative regulation.  That leaves the Tax Courtroom to use basic rules of administrative regulation to (1) use an abuse of discretion normal of overview and (2) base its overview solely on the executive document.  See Kasper v. Commissioner, 150 T.C. 8 (2018).

The Tax Courtroom doesn’t do that alone.  Treas. Reg. 301.7623-3(d) fills within the statutory silence as to what constitutes the executive document by offering that “the executive document includes all info contained within the administrative declare file that’s related to the award willpower and never protected by a number of widespread regulation or statutory privileges.”  The regulation then provides a particular laundry record of supplies that represent the executive declare file, together with stuff just like the Type 211, any related Types 11369, and so on.

Immediately’s case teaches us the extent to which a whistleblower can use the Tax Courtroom to drive the IRS to complement what it has designated as the executive document.  Spoiler alert: it’s a really steep hill to climb.  Let’s see what we will study.

Information
Beginning the late 1990’s and into the early 2000’s, the IRS started investigating every kind of refined tax shelters, one in all which was known as the Quick Possibility Technique (SOS) tax shelter.  The IRS went after varied promotors, reminiscent of KPMG, to search out out what taxpayers have been taking part.  For instance, here’s a 2004 courtroom case the place you see how the IRS was summonsing paperwork from KPMG associated to a number of tax shelters, together with the SOS shelter.  United States v. KPMG LLP, 316 F. Supp. second 30, 38 (D.D.C. 2004).  The IRS did this, partially, to establish taxpayers who might need participated within the tax shelters.

Apparently, the IRS bought Mr. Berenblatt’s title in reference to its investigations as a result of, in November 2007, an IRS Particular Agent (SA) (a part of the IRS Felony Investigation (CI) unit) requested to satisfy with Mr. Berenblatt.  In different phrases, not like conventional whistleblowers, Mr. B. didn’t strategy the IRS.  The IRS approached him, one in all a whole bunch the IRS interviewed.  Mr. B. met with the IRS in November 2007.  The principal SA at his assembly was Shawn Chandler.

Mr. Berenblatt—an skilled inventory dealer—by no means participated within the SOS scheme as a result of he had decided it was a shell recreation.  Nor does it seem that he blew the whistle, within the conventional sense of figuring out somebody the IRS didn’t find out about.  Fairly, he claims that in the course of the November 2007 assembly he gave the CI staff a proof of precisely why the SOS scheme was fraudulent. “Mr. Berenblatt claims he was the primary particular person to supply the IRS with a profitable litigation tactic for proving the fraudulence of the SOS transaction.” Op. at 4.

Over time, the IRS went after varied taxpayers and promoters of the SOS scheme.  For instance, right here’s a 2012 DOJ press launch touting a deferred prosecution settlement the place BDO Seidman agreed to pay $50 million to flee prosecution for promoting fraudulent tax shelters, together with the SOS scheme.

Apparently, Mr. Berenblatt was taking note of all the federal government successes.  In July 2015 he submitted a Type 211, together with supporting memoranda, claiming he was due a whistleblower award as a result of the data he offered enabled the IRS to win circumstances and gather a minimum of $7.3 billion from taxpayers and tax shelter promoters.  Hey, you’ll be able to’t get one thing should you don’t ask!

The WBO officer charged with making the choice on Mr. Berenblatt’s declare was a Ms. Meis.  Per the method set out within the IRM (Half 25.4) and the rules, she requested for, and obtained, a Type 11369 (“Confidential Analysis Report on Declare for Award”) from Mr. Chandler, the SA who had met with Mr. Berenblatt.  Right here’s a part of what he wrote:

“The investigation of the [target] taxpayers was nicely underneath approach by the point the Whistleblower met with, and offered info to, Inner Income Service–Felony Investigation in or round November 2007. *** The whistleblower was one in all a whole bunch of people recognized as having had contact with the taxpayer(s) relative to the tax shelter transactions at concern within the investigation. The whistleblower didn’t present any new info relative to the investigation. The whistleblower was not thought of a viable potential witness within the investigation and didn’t testify in the course of the two legal trials on this matter. In addition, over 100 people had been interviewed within the investigation on the cut-off date the Whistleblower met with Inner Income Service–Felony Investigation…and an unlimited variety of monetary and tax associated subpoenaed data had been analyzed as nicely.”

Based mostly on Mr. Chandler’s report and different info, Ms. Meis ready a preliminary advice to disclaim any award to Mr. Berenblatt.  The WBO despatched that to Mr. Berenblatt in January 2017.  The opinion is silent on what response, if any, Mr. Berenblatt made.  The following reality recited is that the WBO despatched him a last denial letter two months later.  He well timed petitioned the Tax Courtroom in 2017, and now right here we’re some six human years later.  However lower than one 12 months within the lifetime of the regulation.

The rationale it appears to have taken so lengthy is seemingly as a result of Mr. Berenblatt was involved that the 765-page administrative document that the IRS submitted to the Tax Courtroom was incomplete.  Accordingly, he filed in depth discovery requests and adopted up with motions asking the Tax Courtroom to compel the IRS to provide a bunch of paperwork that he didn’t see within the administrative document however thought needs to be there.

Lesson: The Administrative Document is What the IRS Says It Is, With Very Slim Exceptions.
Mr. Berenblatt argued that the executive document was incomplete for 2 causes.

First, it didn’t comprise paperwork that supported all of the statements and causes given by SA Chandler within the Type 1139 for denying Mr. Berenblatt an award.  For instance, Mr. Berenblatt requested the Tax Courtroom to compel the IRS to establish every of the “over 100” people referenced by SA Chandler in addition to any paperwork about them.  Op. at 7, 8.  These weren’t within the administrative document the IRS offered.  Mr. Berenblatt additionally needed to see that “huge variety of monetary and tax associated subpoenaed data” referenced in Mr. Chandler’s narrative. 

Second, Mr. B. thought the WBO negligently didn’t correctly consider whether or not the data he gave in November 2007 was what he claimed: the golden key that unlocked a successful concept for the IRS in litigation.  For instance, he needed the IRS to show over “all paperwork [created or modified between march 24, 2007 and March 24, 2008) containing the objectives, strategies, and progress of the SOS Shelter Investigation….”  Id.  He wanted copies of all written reports prepared by experts retained by the IRS in all the SOS litigations.  Id.  And, oh, he wanted much, much more!  Such a fisherman!

The most generous characterization of Mr. B’s arguments is that he believed the administrative record was not complete unless it included all documents that were available to (and not just used by) each decision-maker in the chain (here, Mr. Chandler), and not just the documents and information that the WBO officer had in front of her.  You can see where that argument comes from: it goes back to the idea that an agency is not a person, it’s a process.  There may be important information in earlier stages of a decisional path that should be included in the final administrative record.  That is why I described Thomson v. Dept. of Labor, Wilson v. Hodel, above.

Judge Copeland rejected the arguments, giving us our take-aways:

First, she explains that the Court will use the Treasury Regulations to define what are the “necessary part of the complete record.” Op. at 17.  Law is a slow-moving conversation and the well-crafted Treasury Regulations tell the IRS, the court, and the world what ought to be in a whistleblower’s administrative record.

Second, she invokes the strong presumption that the IRS has provided a complete administrative record.  “Absent a substantial showing made with clear evidence to the contrary, an agency is presumed to pave properly designated the administrative record.”  Id. at 17 (quote and citations omitted).  To be sure, if Mr. Berenblatt could show bad faith—such as a record of Mr. Chandler saying evil things about Mr. B.—then that might overcome the presumption.  But notice how that presumption is packed with strong words: “substantial showing” and “clear evidence.”  As presumptions go, this is a very strong one.

Third, and to me the meat of the opinion, she explains that the question is not what documents were available, but what documents were used.  Thus, for example, as to Mr. B’s demand for all the documents concerning the 100 or so other folks interviewed by CI, Judge Copeland writes: “Mr. Chandler’s Form 11369 narrative contains no description whatsoever of the contents of the interview documents or subpoenaed records.” Op. at 19-20.  She further notes, echoing the D.C. Circuit’s concern in Oceana (noted above) that “[i]f any doubtlessly out there doc within the IRS’s possession on the time the WBO made its determination have been discoverable, that might render the document rule all however meaningless.” Op. at 20 (emphasis provided).  She drops this footnote: “In the meantime, we can’t settle for (and the regulation doesn’t point out) that simply any exterior doc {that a} Type 11369 refers to—nevertheless glancingly—is per se a part of the document.”  Op. at 21, be aware 8.  That is fully in step with how different courts strategy the problem, as I defined above.

Thus, for Mr. B. to win his rivalry that the executive document was incomplete, he wanted to show there have been lacking paperwork really used by the WBO both instantly (i.e. utilized by Ms. Meis) or not directly (i.e. utilized by Mr. Chandler) in coming to the choice to disclaim him an award.  He failed to try this.

Lastly, as to the negligence declare, Decide Copeland took judicial discover that one IRS professional’s report submitted in litigation earlier than Mr. B.’s first interview had the identical concept of the case that Mr. B. was claiming was his contribution for which he deserved an award.  Decide Copeland is cautious to clarify that this doesn’t imply she is deciding that his award declare lacked advantage.  “Fairly, we decide solely that the existence of [the expert report] defeats any important exhibiting of WBO negligence in failing to exhaustively overview interview paperwork and subpoenaed data collected in reference to the SOS litigation.” Op. at 22, be aware 11 (emphasis provided).  Readers who’re litigators will acknowledge this transfer!  It is the ole “Your Honor, I’m not introducing this actually juicy and damning rumour for the reality of its content material however solely to point out what my shopper was reacting to.”

Decide Copeland acknowledges that if Mr. B. might show the WBO intentionally (and even negligently) excluded from consideration paperwork that will have been hostile to its determination, he would have a shot at compelling the IRS to show these over, however that’s an especially tough raise.  The taxpayer did it in Emery Celli Cuti Brinckernhoff & Abady, P.C. v. Commissioner, T.C. Memo. 2018-55.  There the taxpayer had a CDP listening to and despatched paperwork to the Workplace of Appeals after  the deadline given by Appeals.  Appeals ignored them.  The Tax Courtroom mentioned these paperwork ought to have been made a part of the executive document as a result of the taxpayer confirmed they despatched the paperwork they usually lower in opposition to the choice being reviewed.  Decide Copeland explains that, not like the taxpayers in Emery Cell, Mr. B. couldn’t establish any paperwork he had despatched that had been omitted from the executive document.

Backside Line: This case exhibits how and why the Tax Courtroom could be very reluctant to permit litigants to make use of the invention course of to fish for extra info when the Courtroom is performing its judicial operate on the idea of an administrative document.  That’s due to the very sturdy presumption that the IRS has correctly created the executive document, following the Treasury regulation steering.

Coda: The Tax Courtroom has lately added to the slow-moving dialog of what constitutes the executive document by adopting Tax Courtroom Rule 93.  In keeping with the Courtroom’s basic strategy, Rule 93 requires the events to stipulate to the executive document.  Litigants are permitted to maneuver the courtroom to finish or complement the document, however that “movement should state intimately why the celebration contends that the executive document is incomplete or needs to be supplemented, and the celebration should connect any paperwork or different info that the celebration alleges is or needs to be a part of the executive document.”  You’ll be able to see why this was of no assist to Mr. B. and why he thought he wanted to file a movement to compel the IRS to provide paperwork in response to his discovery requests: he needed to analyze whether or not the IRS had unnoticed paperwork.  As Decide Copeland notes, most of his requests have been merely a fishing expedition.  Op. at 23. 

Bryan Camp is the George H. Mahon Professor of Regulation at Texas Tech College Faculty of Regulation.  He invitations readers to return every Monday (or Tuesday if Monday is a federal vacation) to TaxProf Weblog for an additional Lesson From The Tax Courtroom.

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